Ahead of festive seasons, it is impossible to avoid the advertisements from lenders, offering loans for shopping and various other needs. Many await this opportunity to grab the best offer to buy a home, car, jewels, etc.at low interest rates. A loan is the best option when you do not have money to pay for things that are essential. However, before opting for a loan, take precautions to choose the right one.
Following are some of the enticing offers that you may come across during the festive season. Let us explore in detail as to check if they are truly worth as proclaimed.
Actual Cost of No Cost EMI
RBI has clarified in its circular in 2013 that the concept of ‘No Cost EMI’ or ‘Zero Interest Loans’ is non-existent. Every loan comes with an interest rate attached based on the customers’ risk profile. You may now be wondering how the lender is able to provide you zero interest loans. Often, the interest is camouflaged in the form of exorbitant processing fee and passed on to you.
In another way, the online shopping platforms who have tie up with the lending institutions agree to forego the discount which would have been offered to you if you had made a lump sum payment. Lenders recover the interest charges from the discount amount.
Some lenders may charge a joining fee which needs to be paid upfront before taking the loan. Hence reading between the lines will help you understand the entire No cost EMI process. Though it’s a marketing gimmick that is used to lure a customer, it has helped many to buy their essentials and pay for them at a convenient tenure.
Cashback is another attractive term that lenders, credit card companies, e-commerce site and retailers use to lure more buyers. However, the cashback doesn’t come so easy for you. There are conditions attached to it.
Lenders and third-party financial portals offer cashback upon applying for a loan or credit card. In most cases the cashback is not credited into your account but it can be used only at online shopping sites for festival purchase. You either get it as a voucher or an e-wallet cash. On consumer durable loans or credit card purchase, the cashback may be applicable only if you reach the maximum cap.
Processing Fee Waiver
The processing fee on a loan usually ranges between 1% to 3%. If the loan amount is small, waiver on a processing fee would not bring a great benefit to you. Moreover, the lender may not offer you a full waiver on the processing fee. It may come to you as 50% or a 25% discount on processing charges. It is of no use taking a loan just because the lender offers a waiver on processing fees. It would be beneficial if you could get an offer on the interest rate of the loans. Even a slight reduction can help you reduce the loan burden.
Zero Down Payment
Zero down payment means that the borrower does not need to pay any money upfront for the purchase of a product through EMI. The lender bears the entire cost of the product and you need to repay the entire amount in EMI with interest. This offer is applicable to secured loans such as auto and consumer durable loans. It is a good option when you are penniless and are unable to gather money for the down payment. However, the loan can become costly wherein you may not have the advantage of negotiating for lower interest rate with the lender. You will have larger EMI amount with higher interest outgo. Moreover, the offer may be available only for certain products. Hence, consider all the factors and make up your mind to go for it.
Popular Festival Loans in India
SBI Festival Loan
SBI’s festival loan can be availed by anyone who has minimum monthly income of Rs. 3000.
Following are the details:
- Minimum Loan Amount: Rs. 5000
- Maximum Loan Amount: Rs. 50,000
- Processing Fee: 1% of the loan amount + GST
- Prepayment Charges: 3% of the outstanding amount
- Interest Rate : 10.55% onwards
HDFC Bank Festive Treats
HDFC Bank has announced its tailor made product Festive Treats which lets you avail a loan for this festival purchase. You may choose an item to be purchased from the official website of the bank and apply for the loan. You can also avail discounts and cashbacks on each item upon purchase.
ICICI Bank Festival Delights Offers
Aligning with various brands and online shopping companies, ICICI Bank provides loans for festival shopping. The customers get guaranteed cashback on different items. Similarly, debit and credit card users get discounts on the purchase of products from the partnered stores and sites.
Look Before You Leap: Should you go for a festival loan?
Festival is the time of exchanging gifts, buying new clothes, jewels and other accessories. It’s also the time that banks and other companies lure customers to sell all the products at attractive prices. Money saved in advance can save you the trouble of taking a loan. However, it’s not the case with all. A loan is the only way out for many to make the festival more merrier.
Before applying for a loan, check if you are in a good credit health. It helps you avoid a loan rejection. When you have decided to apply for a loan, check with multiple lenders about the rates offered. Compare the interest rates and apply with the lender who would be willing to give you the best terms.
Maintaining a good credit card utilisation ratio is essential to keep up the good credit score. You may tend to overspend during the festival purchase which may impact your credit score negatively. Keep tabs on your credit card spends and do not exceed the recommended 30% utilisation ratio.
Festival is a wonderful opportunity if you look forward to taking a big ticket loan. Many lenders announce rate cuts during festive season to woo more customers. With the banks lowering interest rates for individuals with good credit score, home loans and car loans can become cheaper for credit healthy individuals.
A loan with an offer should not be the reason for you to make the leap. You must remember that it has to be repaid with interest. Distinguishing your needs and wants before applying for a loan can help you make the right choice. A loan is best when it is taken for your important needs. An offer on the festival loan is a sweetner to the celebration if informed borrowing decisions are made.
Additional Reading: Gift yourself an iPhone this Diwali